US Markets Research Articles

Does Income Smoothing Improve Earnings Informativeness? – A Comparison between the US and China Markets

Abstract Tucker and Zarowin (2006) examine the impact of income smoothing on earnings informativeness, as proxied by the future earnings response coefficient (FERC). In this paper, we replicate Tucker and Zarowin (2006) and compare the results between the US and China markets. Specifically, using a sample of US firms from 2003 to 2008, we first find results consistent with Tucker and Zarowin (2006) that income smoothing improves FERC. However, our analysis for the China market over the same sample period indicates that income smoothing has little impact on FERC. Within the China market, we further find that income smoothing does not affect FERC for state-owned enterprises (SOEs) but weakly affects FERC for non-state-owned enterprises (non-SOEs). We argue that the market-level differences in information environment partly account for the differential impacts of income smoothing on FERC.

Asian Financial Crisis and the Linkages between US and Asian Stock Markets

Asian Financial Crisis and the Linkages between US and Asian Stock Markets

Market Efficiency and Returns to Simple Technical Trading Rules: New Evidence from U.S. Equity Market and Chinese Equity Markets

Numerous studies in the finance literature have investigated technical analysis to determine its validity as an investment tool. This study is an attempt to explore whether some forms of technical analysis can predict stock price movement and make excess profits based on certain trading rules in markets with different efficiency level. To avoid using arbitrarily selected 26 trading rules as did by Brock, Lakonishok and LeBaron (1992) and later by Bessembinder and Chan (1998), this paper examines predictive power and profitability of simple trading rules by expanding their universe of 26 rules to 412 rules. In order to find out the relationship between market efficiency and excess return by applying trading rules, we examine excess return over periods in US markets and also compare the excess returns between US market and Chinese markets. Our results found that there is no evidence at all supporting technical forecast power by these trading rules in US equity index after 1975. During the 1990's break-even costs turned to be negative, -0.06%, even failing to beat a buy-holding strategy in US equity market. In comparison, our results provide support for the technical strategies even in the presence of trading cost in Chinese stock markets.

A Hybrid Neuro-fuzzy Model to Forecast Inflation

One of the key issues in constructing monetary policy is accurate prediction of the inflation level. The complex behavior and non-linear nature of the financial markets makes it hard to forecast the inflation rate precisely. This paper introduces a hybrid model that attempts to forecast the inflation rate with a combination of a subtractive clustering technique and a fuzzy inference neural network to overcome the shortcomings of the individual methodologies. Selected macroeconomic factors were used to predict the historical CPI data from the US Markets. The results of the proposed hybrid model are measured in RMSE.

Return and Volatility Spillovers Between the US, Japanese and Malaysian Stock Markets

ABSTRACT The present study investigates the return and volatility spillover between the stock markets of the US, Japan and Malaysia using weekly data concerning the SP and is significant from the first week. The results from the present study are relevant for fund managers and investors when making investment decisions that involve the consideration of risk and return elements; for policy makers to monitor the financial market stability; and for hedgers to forecast risk and develop hedging strategies. Keywords: Causality in mean; causality in variance; spillovers; stock market volatility; structural break in variance ABSTRAK Kertas ini mengkaji limpahan pulangan dan volatiliti antara pasaran saham Amerika Syarikat, Jepun dan Malaysia menggunakan data mingguan indeks komposit SP pembuat polisi dalam mengawal kestabilan pasaran kewangan dan pelindungnilai dalam meramal risiko dan membentuk strategi lindungnilai. Kata kunci: Hubungan sebab akibat dalam min; hubungan sebab akibat dalam varians; limpahan pasaran saham volatiliti; perubahan struktur dalam varian

Innovations in ETPs:A Comparative Analysis of the US and European Markets

Innovations in ETPs:<b>A Comparative Analysis of the US and European Markets</b>

Spillover effects of the 2008 global financial crisis on the volatility of the Indian equity markets: Coupling or uncoupling? A study on sector-based data

This paper focuses on the following question: has the global financial stress in the US markets during the subprime crisis induced a persistent volatility of Indian equity stocks? We answer this question using sector-based data and we propose a simple stochastic volatility model augmented with exogenous inputs (financial stress indicators in the US market). We derive analytically the autocorrelation of the squared returns using cross-moments and estimate the impact of several variables such as the CDS spreads, the ABCP spreads, market liquidity, the volatility of the S&P 500 using a Kalman filter approach with the impact captured through Almon polynomials. We find a strong evidence of persistent volatility irrespective of the sector and interpret this finding as the result of two factors: the lower liquidity of the Indian equity markets during the subprime crisis and a wake-up call effect.

Venture Capital and Industry Structure: Evidence from Local US Markets*

I use a panel of US manufacturing industries to test how venture capital (VC) affects the size distribution of business firms. The estimates suggest that an increase in the supply of VC affects positively mean firm size by increasing the relative share of medium-sized and larger firms. These results are robust to specifications that address the endogeneity in the supply of VC. The empirical evidence is consistent with the idea that VC promotes the “elitization” of firm entry.

Dynamic interdependence between US and Asian markets: an empirical study

PurposeThe purpose of this paper is to examine the short‐term stock market interactions between US and six major Asian markets – China, India, Hong Kong, Singapore, South Korea and Taiwan. These six economies along with Japan and Australia have the largest stock exchanges in the Asia‐Pacific region. The importance of the US market to the Asian economies is the prime motivation for a quantitative assessment of its role in this region. The objective of this study is to measure the dynamic stock market interdependence of US and Asian newly industrialized economies (NIEs) (Hong Kong, Singapore, South Korea and Taiwan) and emerging market economies (EMEs) (China and India) post Asian crisis of 1997 and also to capture the market interactions during the sub‐prime crisis.Design/methodology/approachThe study has employed Granger causality tests and generalized forecast error variance decomposition (FEVD) analysis to analyze the fluctuations in and the extent of short‐term interdependence between the US and Asian economies. VAR model was estimated to run the simulations for FEVD analysis.FindingsThe empirical results from FEVD analysis revealed the dominance of US stock market on Asian markets; the USA being a large economy of the world, an important trading partner and major supplier of capital to Asian region. Stock markets of Asia are not immune to the shocks originating in the USA although the effects of shocks vary considerably across markets. Further, an important implication is that major crisis events can influence the relationship among stock markets.Originality/valueThis is one of the first papers in the Asian context examining the interdependence with the US markets. Hence, even though most of the Asian economies went through liberalization, the macroeconomic and financial circumstances were very different before, after and during the process. This motivated the examination of the interactions between US and other Asian markets.

Intraday market liquidity, corporate governance, and ownership structure in markets with weak shareholder protection: evidence from Brazil and Chile

This paper investigates the effects of very highly concentrated ownership structures on the liquidity of stock markets in a context of weak protection for minority shareholders. Such structures are prevalent in a number of European markets as well as in various developing markets, as opposed to US markets. Two alternative hypotheses are tested. The shareholder expropriation hypothesis predicts an inverse relationship between liquidity and ownership concentration for the dominant shareholder. The dominant monitor-insider hypothesis contends that dominant shareholders are not detrimental to market liquidity, since they have incentives to reduce their costs of exit and/or to improve the information transfer of their value enhancing activities to markets. Our empirical results are more consistent with the latter. We find that alternative governance mechanisms also have liquidity enhancing effects for Brazilian and Chilean firms. In particular, cross-listing in the US market and the threat of outside takeovers serve as monitoring devices to reduce informational asymmetries.

How AMOREPACIFIC Became a Globally Successful Cosmetic Company through Unconventional but Sensational Marketing?

AMOREP ACIFIC has rapidly grown to become a successful global brand by persistently seeking and achieving success in foreign markets. In 2011, AMOREPACIFIC was ranked as one of the global top 20 cosmetics companies. What makes AMOREPACIFIC`s global success noteworthy is that AMOREPACIFIC challenged the France and the US market where competition level is the toughest. Lolita Lempicka, AMOREPACIFIC`s perfume brand, was chosen as one of the top seven most popular brands in the women`s perfume market in France. In addition Amorepacific, AMOREPACWIC`s namesake skincare brand, is cur-rently recognized as a top prestige brand in the USA. Their success played a significant role as a bridgehead for AMOREPACIFIC in becoming a global cosmetics company. The main object of this case study is to analyze how AMOREPACIFIC became a global cosmetic company through building key brands such as Lolita Lempicka and Amorepafic, among others, Therefore, this study reviewed AMOREPACIFIC`s unconventional approach in launching Lolita Lempicka in France, and Amorepacific in the US by focusing on how they foresaw the future op-portunities and employed innovative marketing strategies. Specifically, we focused on Amorepacific`s marketing strategy under the critical period when AMOREP ACIFIC achieved great success in France with Lolita Lempicka (between 1997 and 2004) and in US with the brand, Amorepacific (2003-2008), The case of AMOREPACIFIC`s success in the global markets can give valuable lessons to companies that want to extend their businesses to foreign countries and ultimately become global. One such les-son is the importance of building a successful pioneer brand in a powerful bridgehead market. While domestic competitors first entered into less competitive markets such as those in South-East Asia. AMOREPACIFIC challenged the toughest markets such as the French and US markets where the incumbent companies waged the most intensive and severe battles against Lolita Lempick and Amorepacific, Through the success in France and US market, however, AMOREPACIFIC built a powerful base for its successful global expansion. Another valuable lesson is the importance of foresight in uncovering great opportunities hidden be-hind the trends without losing focus on the brand`s core character and values. Lolita Lempicka and Amorepacific showed excellence in foresight competition, which led them to succeed against the in-tense competition from Goliath companies. If Lolita Lempicka and Amorepacific had just followed the popular market trend at the time, they would have never succeeded.

Liquidity and Returns to Target Shareholders in the Market for Corporate Control: Evidence from the US Markets

AbstractIn this paper we analyze how stock market liquidity affects the abnormal return to target firms in mergers and tender offers. We predict that target firms with poorer stock market liquidity receive larger announcement day abnormal returns based on the following considerations. First, target firms with poorer stock market liquidity receive greater liquidity improvements after a merger or tender offer. Second, deals that involve less liquid targets are less anticipated and/or more likely to be completed. Third, less liquid stocks have more diverse reservation prices across shareholders and thus require a higher takeover return. Consistent with these expectations, we show that abnormal returns to target firms’ shareholders are significantly and positively related to the difference in liquidity (measured by the bid‐ask spread) between acquirers and targets as well as the magnitude of target firms’ liquidity improvement.

Impacts of new routes and ports on spatial competition for containerized imports into the United States

Major changes are occurring in the logistics of container shipping including growth in demands, increased ship size and development of new ports and routes to serve the US market. The Panama Canal is in the process of being expanded and potential exists for shipping through the Northwest Passage in addition to new ports being developed on the West Coasts of Canada and Mexico. All these alternatives are expected to compete with the US logistics system. The purpose of this paper is to analyse prospective impacts of these changes on the container flows for shipments to the US markets. A spatial network flow model of the logistics for containerized imports into the United States is developed. It includes ocean shipping in different size vessels operating as strings, port handling, congestion costs and rail shipping. The base model calibrates well with historical shipments through ports and the interior rail system. Then, we analyse impacts of new ports and routes on the US system.

An Analysis of Volatility Co-Movement between Malaysia, US, UK and Japan Stock Markets

The main objective of this paper is to investigate the reaction of the Malaysian stock market on the international financial arena as a result of different inflows of information and economic shocks from the international stock markets. Simultaneously, the study will also encapsulate how stock market volatility has implications on financial and economic activities in Malaysia and the dynamics of major stock markets around the world can have ramifications on the Malaysian stock market. Using the stock price indices and returns over the period of 2000-2008, an analysis of volatility co-movement of Malaysian stock market with US, UK and Japan were estimated via Univariate GARCH model with asymmetric extensions and Vector Autoregression (VAR). The findings observed that the co-movements between the Malaysian market and other markets in the analysis is minimal and is not in line with the findings in the existing literature as it has been observed that Asian markets are vulnerable to movements with the US market. Additionally, Malaysian returns do not much affect other markets and is also quite contrary to the findings in the literature. The degree of co-movements indicates that there is still much scope for reaping risk minimization and return maximization benefits of portfolio diversification, at least in the short term by investing in Malaysia, as integration of the Malaysian market is not of a very high order. This leaves sufficient room for switching between mature markets such as that of US, UK or Japan

Going public abroad: the dynamics of return spillovers in an atypical international cross listing case

In this study we investigate the dynamics of the return transmission mechanism across markets (spillover effects) in the atypical international cross listing case where the stock has gone public abroad and then cross listed in the home market. Previous studies have examined such dynamic return interactions in the typical case, where a company goes public in the domestic capital market and subsequently cross lists its stock in a foreign stock exchange. Our sample consists of Israeli stocks that went public in the US and then cross listed in the home market. The empirical evidence suggests that return spillovers are significantly positive in both directions but home-to-US return spillovers are stronger than those of US-to-home. The magnitude of the return dependencies across the home and the US markets is weaker among firms facing greater risk of information asymmetry. There is a tendency for reversal of the US market returns associated with high-volume shocks in the home market but a tendency for continuat...

The comparative advantage of Chinese manufactured exports

PurposeConsiderable research has been conducted on the comparative advantage of Chinese manufactured exports before 2000, but too little attention has been focused on the twenty‐first century. With this rapid growth of China's export volume since 2001, what is the change in comparative advantage? Have qualitative changes taken place? The purpose of this paper is to conduct a thorough analysis of the comparative advantage of Chinese manufactures from 2002 to 2009, not only within the world market but also in the US market.Design/methodology/approachThe research is based on 144 manufactures' comparative advantage in the US and world market, displaying the distribution and variation range for the comparative advantage of Chinese manufactures at different technological levels in the 2002‐2009 period with the RCA Index. This paper classifies 144 kinds of manufactures (on Standard International Trade Classification, Rev. 3 data) by technology level into five general groups and nine small groups, which cover the majority of Chinese manufactured exports.FindingsFirst, the authors found that types of Chinese manufactured products with comparative advantage in both world and US markets are increasing. Most of the products with comparative advantage are low technology (LT) products. Second, in the world market, the comparative advantage of Chinese medium technology (MT) products has largely improved, but their RCA indexes are low and their kinds of products with very high comparative advantage are small. Third, as a whole, Chinese manufactured exports are of greater comparative advantage in the world market than in the US market. Specifically, LT products have the same position in world and US markets, while MT products and high technology (HT) products obviously have a greater comparative advantage in the world market.Originality/valueFirst, little research has been conducted on the comparative advantage of Chinese manufactured exports since 2001. This paper undertakes a thorough analysis of the comparative advantage of Chinese manufactures from 2002 to 2009, not only within the world market but also in the US market. Second, it is very important for China to stabilize the overseas market demand and secure exports, this paper shows how China could cope with a crisis.

Model-Based versus Model-Free Implied Volatility: Evidence from US, European, and Asian Index Option Markets

This study compares the efficacy of Black–Scholes implied volatility (BSIV) with model-free implied volatility (MFIV) in providing volatility forecasts for 13 North American, European, and Asian stock market indexes: S&P 500 (United States), S&P/ASX 200 (Australia), S&P/TSX 60 (Canada), AEX (the Netherlands), EURO STOXX 50 (Eurozone) CAC 40 (France), DAX 30 (Germany), HSI (Hong Kong), NIFTY 50 (India), Nikkei 225 (Japan), KOSPI 200 (Korea), SMI (Switzerland), and FTSE 100 (United Kingdom). In-sample volatility forecasts show that both BSIV and MFIV significantly improve the fit of a GJR-GARCH(1,1) model. However, BSIV dominates MFIV for predicting future volatility. Out-of-sample one-month volatility forecasts also indicate that BSIV outperforms both MFIV and GJR-GARCH(1,1) volatility.

Global Financial Crisis and Stock Market Integration: A Study on the Impact of Global Financial Crisis on the Level of Financial Integration between the US and Indian Stock Markets

This article, using the daily returns of the indices of US (S&amp;P 500) and the Indian stock markets (CNX S&amp;P Nifty), examines the impact of the global financial crisis on the level of financial integration between the US and Indian stock markets from March 2005 to November 2010. The article also analyses the existence of cointegration and dynamic relationship between the two indices during the pre-crisis, crisis and post-crisis periods, and in the last five years, using the Johansen Cointegration analysis and the Vector Auto Regression (VAR) Model. The article finds no cointegration between the two indices in all the four periods. The returns from the Indian stock market with reference to the previous day’s return of the US stock market show a lot of feedback effect from the US to India, whereas the returns from the US stock market show no significant reaction. However, in terms of its own past, there is a strong negative reaction due to the overreaction or mean reversion of the stock market during the post-crisis period.

Intra-Daily Volatility Spillovers between the US and German Stock Markets

Using a novel three-phase model based upon a conditional autoregressive Wishart (CAW) framework for the realized (co)variances of the Dow Jones and the German stock index DAX, we analyze intra-daily volatility spillovers between the US and German stock markets. The proposed model explicitly accounts for three distinct intraday periods resulting from the non-synchronous and partially overlapping opening hours of the two markets. We find evidence of significant short-term volatility spillovers from one intra-day period to the next within both markets ('heat-wave effects') as well as across the two markets ('meteor-shower effects').Furthermore, we find that during the subprime crisis the general persistence of short-term volatility shocks is substantially higher and the spillovers effects between the US and the German stock markets are significantly larger than before the crisis, indicating substantial volatility contagion effects.

Price Dynamics in Commodity Market: A Comparison between European and US Markets

This paper tests for the presence of long memory and nonlinearity in returns and volatility for six agricultural futures daily prices series, three traded on MATIF Euronext (Wheat, Corn & Rapeseed) and three traded on CBOT (Red Winter Wheat, Corn & Soybean) over the period from 2000 to 2010. If the price dynamics on the CBOT market seems to be described by classical ARMA-Garch modeling, time series dependences on the MATIF market do not appear to be fully described only by short-term dependences. Using various criteria such as Hurst exponent, correlation dimension and BDS test, the result suggests the presence of long memory for the European market. However, it appears that low fractional order of ARFIMA-type or FiGARCH-type models can explain, but not all, the observed nonlinearity. Nonlinearity could be influenced by regime shift. Subsequently we screened series of structural breaks influence on volatility. Breaks seem be caused by temporary public intervention on the market. Although we cannot fully accept the assumption of independence for all filtered series, serial dependences on the MATIF series appear to be largely explained by structural changes on volatility related to the policy of public intervention in the market.